Bayer Italy's supply chain transformation

Michele Palumbo, Head of Supply Chain Management at Bayer Italy, discusses the challenges of COVID-19 and the way technology is shaping the future of the supply chain.

|Nov 27|magazine15 min read

The arrival of the COVID-19 pandemic sent shockwaves through global supply chains this year, with plant closures and supply shortages leading to major disruptions. This led many organisations to rethink the way they operate, choosing digital solutions to enable more visible, and easier to manage supply chains. 

In the case of Bayer Italy, their Head of Supply Chain Management Michele Palumbo explains that COVID-19 led to a digital acceleration that normally would have taken them 10 years, but they instead achieved in little under 10 months.  

"It sounds crazy to say this is ‘thanks’ to COVID, but I believe there is always something positive to come out of even the most negative of things," he says. 

Bayer Italy’s digital transformation actually began in 2010 as they strived to move from software to a collaborative ecosystem.

“You can have the best algorithm that you could imagine, but no algorithm is able to predict what will happen in the future, so we were dealing with some business disruption risks related to invoicing software,” says Palumbo. “We took this as an opportunity to think about how we could connect with our partners while integrating them into the legacy system that we had." 

To do this, he says they needed to move beyond the concept of an interface. "It was too expensive and too difficult for small companies that were our partners,” he says. “We had to find a solution that could talk every kind of IT language, and at the same time get information from every kind of data source." 

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“We have a great collaborative approach. If you connect people, and you connect actors, then people start collaborating”

Michele Palumbo | Head of Supply Chain Management, Bayer

Working with TesiSquare, the answer was to build a cloud-based platform where every actor in the process is able to connect in real time and provide useful information, issuing alerts only to the owner of the relevant part of the process, and not sending multiple emails to numerous people. 

This enabled an ecosystem where real-time connections among the actors activated forms of collaboration previously unimaginable. As an example, the collaboration was also extended to the competitors working in the same LSP warehouses since the possible synergies in coordinating the goods - like a calendar with bookable slots - enabled the use of a barcode or QR code to grant a free pass to the carriers coming from whichever country.

"This prevents huge queues from forming, and you can also plan the resources that are required for receiving or dispatching goods," he says. 

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Moreover, the control tower doesn’t just offer business intelligence and advanced analytics features, but also allows them to plan how many warehouses are needed, and where. Via a simulation module, it's possible to move, close and increase LSP sites, to see what would happen in terms of costs, as well as service levels on the basis of ‘what if?’ analysis based on real data referred to the timeframe.  

Palumbo believes the supply chain of the future will be PAL - personalised, automated, and local – a view shared by transformation change expert and author Sean Culey. 

"We want to be able to cope with the service level requirements of the customer of the future. They will have a minimum acceptable level, which is the Amazon one, and if we are delivering drugs the expectation is to have a higher service level than if you're delivering a pair of shoes (with due respect to shoes)."

Their next challenge was to make sure the supply chain was transparent. Palumbo says they had blind spots when it came to proof of delivery to the customers. 

"This is crucial for pharmaceutical providers, because we're dealing with a very long list of things like changes in temperature, humidity, geolocation, lead times, regulatory and quality compliance, security and sustainability, among others." 

Their solution, which they developed with Murata ID Solutions, was to apply disposable RFID (Radio-frequency identification) tags on the shipping cartons and embed permanent ones into the pallets – a technology that enables data to be transmitted cheaply and easily. 

"This helps to identify what the pallets are carrying, and they're also great in terms of the Falsified Medicines Directive (FMD) that will be in place in Italy from 2025, helping to track goods along the supply chain and provide visibility in real time to relevant authorities," says Palumbo.

On top of that, the pallets used are not the regular ones, and the company found a way to reduce the number of pallets they were losing along distribution lines. "We realised it was possible to create a closed circle reusing the same pallets for distribution," Palumbo says. 

The idea was simple, he says. Bayer began working with Valsir to take the most polluting plastics which would normally find their way into landfill or the world’s oceans and instead create a granule that can be used to make plastic pallets. By doing this they are able to operate with 4,000 reusable pallets made from recycled plastic, instead of 75,000 single-use pallets each year made from wood. As well as saving money, and reducing waste, they are generating an additional €250,000 euros by selling the wooden pallets they no longer need. 

"The Green Pallets are practically fireproof, washable, are not affected by mold or bacteria, are difficult to break, and easy to repair. If they do become damaged, the plastic can be reused as raw material for a new pallet. They're light and easy to dismantle, are stronger than wooden pallets, and are stackable," he says. This particular initiative has won numerous awards from Environment Authorities and Logistics councils. 

Palumbo says that the whole process has been dramatically simplified. "We send the order of dispatching goods to the logistics service provider. They print the labels, arrange transportation units, and ship the carton boxes on the Green Pallets. If something is missing during the shipping phase, then we can activate an inventory control that tells us where it is. This works not only because the box isn't visible, 

but also because acoustically it emits a different noise with a different frequency and volume depending on how close you are to it." 

The advantages of their new system have not just been financial. "There have been benefits in terms of service levels, because from a real time point of view, we are automating a lot of activities which before were manual, so we're gaining time. Also, service quality – can you imagine the amount of products we were losing because they were missed, misdirected or damaged? Now we have real-time visibility, with greater security." 

Even though their journey to go digital began before COVID entered the picture, this new way of working seems tailor-made for current protocols, as it's entirely contactless and makes social distancing in the warehouses possible with only one person required on the shop floor.

Palumbo emphasises how important working with partners has been to make this possible. "We have a great collaborative approach. If you connect people, and you connect actors, then people start collaborating,” he says. 

“This is a powerful means by which you can optimise processes and leverage synergies that were completely unknown before because you didn't have the broader view of others. Together, we can solve problems this way." 

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